The rise of environment, social, and governance strategy
How firms can gain a competitive edge by driving business decisions with ESG
By Pamela Cone.
“I believe that ESG will eventually become part of the fabric of our firms, not something separate from the business but core to the firm’s strategy.”
ESG strategy is a journey and one that, if not taken, represents not only a missed opportunity—but a liability.
For many companies, addressing the climate crisis, creating a culture of inclusion, and considering ESG in decision making and brand have become more than a check-the-box exercise.
Research shows that building ESG into company strategy is key to long-term profitability. High purpose companies are more than twice as likely to rank in the top two quartiles of 10-year total shareholder return performance as their low-purpose peers, according to BCG Consulting Group.
Management consultant Peter Drucker said, “Every single social and global issue of our day is a business opportunity in disguise.”
And shareholders, clients, employees, and governments are increasingly expecting companies to show they have an organic, holistic ESG strategy.
It’s hard work
I have been working in the ESG space for professional services firms for more than four years now.
This is hard work in large part because so many of the topics which comprise ESG have become politicized. This is hard work because of the belief that “if something ain’t broke – don’t fix it.”
Some partners still believe that ESG is just the latest fad. But the evidence shows that our “normal” way of doing business is not viable.
Words matter
The way we talk about ESG has the power to change the dynamics of any conversation around it. The thinking and terms around ESG are changing.
Corporate social responsibility vs. environmental, social, and governance
These activities are not a side activity to compensate for harm the business does.
In their Fortune commentary published on April 14, 2022, “How business leaders can turn ESG into a competitive edge – and a calling,” Maggie Schear, Rich Hutchinson, and Marjolein Cuellar, all of Boston Consulting Group, offered these words of wisdom:
“ESG is not about what a company does with the money it makes. ESG is about how a company makes money and the impact on society of that quest.”
“Many companies have hired a chief sustainability officer but haven’t yet mobilized the organization to adopt a sustainability lens. They have equity and inclusion on their score card but haven’t yet built equity and inclusion into their culture and business every day.
“They publish disclosures but haven’t crafted a distinctive story to share. They use their ESG agenda to guide donations, when they could be using ESG to guide their biggest strategic decisions.”
Eventually, in the service of clients, ESG will evolve from a separate practice group within a law firm to a new overarching mindset, informing every area of law and every aspect of how we serve our clients.
Social impact vs. societal impact
What do most people think of when they hear “social impact?” Social impact is not about charitable giving, volunteering, or even pro bono work. Those things are largely immaterial in the overall societal impact of your business.
When professional service firms disregard the societal impact of their business and only talk about charitable giving or volunteering days of service, it’s the equivalent of a manufacturer disregarding waste it dumps into the river, emissions coming from its smokestacks, or slave labor in its supply chain.
Ask instead, “What is the societal impact of your business?”
The greatest societal impact of any professional services firm is the work it does for clients. Start there and follow with your philanthropy and volunteering story.
ESG is not a side activity relegated to a committee of interested employees. It must sit with your board, management committee, executive committee, or your governing body.
I ask firms that I work with these four questions. The answers tell me everything I need to know.
Who directs your firm’s ESG practices, policies, and programs?
To whom does that position report?
Does this person sit on the board of directors?
Is ESG a standing agenda item for your board?
Sustainability vs. viability
Sustainability is not just GREEN activities such as recycling, going paperless, or using LED lighting in your offices. These are all important but largely immaterial in the grand scheme of things. By orders of magnitude, the largest carbon footprint for most professional services firms is business travel.
Everything else is simply skirting around the edges. For most professional services firms, achieving net zero will be impossible without dramatic changes to their air travel policies and practices.
When we talk about sustainability more broadly, not just in the “green” sense of the word, I ask firms if their business model is sustainable going forward. Is their business model viable for the long-term for all their stakeholders, not just their shareholders?
Using the word “viability” instead of “sustainability” broadens the perspective beyond the “green” sense of the word.
Global warming/climate change vs. climate crisis/climate emergency
A BBC special recently on disappearing glaciers and rising sea levels consistently used the phrase “global warming.” That was the phrase used 50 years ago when the realization first emerged that our planet was warming, and we needed to do something about it.
We are so far beyond global warming. We are even beyond calling it climate change, which is still too tame to describe our current situation.
Many global publications are now using either “climate crisis” or “climate emergency” in their editorial guidelines.
We should do the same to convey just how urgently we must act. Our world is in a climate crisis—a climate emergency—NOT just global warming or climate change. The cost of doing nothing is everything.
Values of a company vs. value of a company
Over the years, the words, corporate social responsibility (CSR) have referred to a company’s values. However, the term has been relegated to mean “giving back” through donations and volunteering to the communities where companies do business. Too often these are totally unrelated to the business, i.e., lawyers planting trees or building a Habitat for Humanity house.
The investor community began using the term ESG to refer to the value of a company. We have come to realize, however, that the values of a company and the value of a company are inextricably intertwined.
The broader, more robust ESG moniker has replaced the CSR term, covering the value of and behavior of the BUSINESS itself—NOT just what it gives back to the community.
This is our moment, our opportunity, and our obligation.
We are at a point in time that represents the greatest opportunity and the greatest obligation we will see in our lifetime.
Our world has been dealing with social, financial, and health issues that have cast a light on problems, opportunities, and a turning point.
Now, our challenge is to not rush back to that comfort zone which we used to consider normal. We do not need to commute to an office daily. We do not need to qualify for elite status on multiple airlines. We do not need to inflict such wear and tear on our health and well-being and on the environment.
We have learned from the pandemic what we must leverage to make society stronger in the future, including reducing carbon emissions and addressing healthcare inequities.
We should use this moment to rethink, reconsider, and reimagine a better way. The overarching question is, “Which side of history will we be on?”
Wise words that matter
As we all embark on this very important work, these quotes remind us why we must succeed in transforming our society to a more viable model for all stakeholders. Much is at stake, and current models are not viable long term.
Most of us agree that the elements of ESG are certainly opportunities, but for the professions, perhaps even obligations.
Why the professions?
The professions have the education, skills, talent, access, and spheres of influence to make a difference more so than any other group of people.
Gina Passarella, global editor of American Lawyer Media, wrote this about the legal profession:
“The legal profession is a massive economic engine, employing hundreds of thousands of people and driving the business of every other industry in the world…We must hold the industry accountable to bring the community together to drive progress.”
And while she was writing about the pandemic in the following quote – her words are applicable more broadly:
“This is not a crisis without hope. It is actually an opportunity of epic proportions for law firm leaders to do what they do best—innovate, strategize, and solve complex, multilayered challenges.”
Why us? If not the professions, then who? A commenter on one of my LinkedIn posts wrote this:
“The professions must stand up or stand down. We will not be forgiven for standing by!”
Other leaders in history offer inspiration:
Barack Obama
“We are the first generation to feel the effects of climate change—and the last generation who can do something about it.”
“Change will not come if we wait for some other person or some other time. We are the ones we’ve been waiting for. We are the change that we seek!”
Margaret Mead
“Never doubt that a small group of committed citizens can change the world. Indeed, it is the only thing that ever has.”
And finally, I offer the wise words of Amanda Gorman, the first U.S. National Youth Poet Laureate and the youngest poet ever to speak at an inauguration. She spoke these inspiring words at President Joe Biden’s inauguration in 2021:
“For there is always light in the world.
If only we’re brave enough to see it.
If only we’re brave enough to be it.”
This article is based on a Keynote Address presented as the Chair of PSMG’s ESG Conference on 17 April 2022 in London, UK.
About the Author
Pamela Cone has more than 30 years of experience in the professional services industry in marketing communications and social impact and sustainability roles. She is founder and CEO of Amity Advisory, a consultancy that helps professional services firms strengthen their ESG, Social Impact and Sustainability programs beyond transactional to achieve strategic and transformational outcomes..